Personal Financial Planning
from Ralph Vandervoort
Many of us have been careful to minimize our annual income taxes by seeking competent advice over the years. The fact is when we die we may end up giving much of the tax savings back. For some this may not matter, others may prefer to see their assets go to children, family or charity. About 70% of the wealth in Canada is controlled by people over age 55. Substantial amounts of wealth will be transferred in the next 15-20 years. Both the province and Revenue Canada are continually evaluating ways to get their hands on some of this wealth.
- The entire value of your RRSP, when passed to a non-spouse, is 100% taxable in the year of death.
- The increase in value of any capital property (cottage, real estate, stocks, etc.) is deemed sold on your death at fair market value. 50% of the gain is taxed.
- Assets passed on via your will are subject to probate fees.
- Consider Segregated Funds aa an option, which can be especially useful in the following situations:
- People in poor health.
- Older people.
- Self employed individuals (creditor protection).
See also my page on Registered Savings Plans for other financial planning opportunities.
A client (early 40's) is the only income earner in the family. Her husband had a serious illness and was disabled. He was staying at home and trying to parent their two children. Her RRSP's are being invested into a spousal segregated fund. At the peak of the recent stock market correction her husband died. At this time the average investment fund was down 20%! This would have been a very painful financial loss in addition to the emotional trauma. However:
- this fund had a 100% guarantee of all deposits on death (saving the 20.0%).
- this fund was exempt from probate fees (saving another 1.5%).
- all values were transferred tax free to her RRSP.